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Regulatory risks seen higher in developed markets

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Emerging markets offer a higher level of political uncertainty.

Ringing in change:Dr Bobby Srinivasan (left), President, IFMR, and Mr S. Vishvanathan, MD and CEO, SBI Capital Markets Ltd, strike the BSE opening bell as Mr Madhu Kannan, MD and CEO, BSE, looks on at a summit in Mumbai on Friday.
Ringing in change:Dr Bobby Srinivasan (left), President, IFMR, and Mr S. Vishvanathan, MD and CEO, SBI Capital Markets Ltd, strike the BSE opening bell as Mr Madhu Kannan, MD and CEO, BSE, looks on at a summit in Mumbai on Friday.

Our Bureau

Mumbai, Jan. 21

Companies wanting to expand overseas should be aware that regulatory risks are higher in developed markets.

Emerging markets offer a higher level of uncertainty with respect to political stability and risks related to repatriation of funds.

“It is for companies to take a call on which markets to enter,” said Dr Rajeev Uberoi, Group Head-Legal and Compliance IDFC, at a panel discussion on risk considerations for aspiring Indian MNCs.

“Developed markets offer high volumes but lower margins whereas underdeveloped markets usually give higher margins but lower volumes for the same business.”

Organisations are in the best position to judge their risk appetite given that they understand their own resources and constraints.

The discussion held at the BSE on Friday was an initiative of Arthasabha, finance club of the IFMR Business School.

“Risk and opportunity are two sides of the same coin. To understand the opportunity one has to understand the risk that is contained in the opportunity,” said Mr Shrikant Rege, Senior Advisor, Deloitte Touche Tohmatsu India.

Risk in cross-border business is dynamic, the panel noted.

Firms should strike a balance between growth and return objectives, and align their risk appetite to strategy,” said Mr Prabhakar Dalal, Executive Director, EXIM Bank. “They should never avoid risk but try to understand its nature and try to mitigate the uncertainty.”

Firms need to guard against increasing cases of sovereign risk (defaulting countries) after the global credit crisis of 2008, said the panellists.

They also dwelt upon entities touted as “too big to fail”. “The risk of moral hazard (of socialising losses as governments try hard to keep such entities afloat with taxpayers' money) remains with such entities,” said Mr Lav Chaturvedi, Chief Risk Officer, Reliance Capital.

(This article was published in the Business Line print edition dated January 22, 2011)
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